Iraq Is Splintering. Sunni insurgents continue to seize towns across Iraq, "splintering the country into hostile fiefs," the New York Times reports. In response, Western-friendly Kurds seized the key oil city of Kirkuk. There remain unconfirmed reports Iran has sent in Revolutionary Guard troops to defend Iraq's Shia government. Brent crude prices already surged 3% yesterday, and early this morning briefly hit close to $115, a nine-month high. They've since come down a bit.

BOE Rate Hike. Bank of England Chair Mark Carney said in a speech yesterday a rate increase "could happen sooner than markets currently expect." "Growth has been much stronger and unemployment has fallen much faster than either we or anyone else expected," he said. The pound climbed 0.2% against the dollar.

Fed Follows Suit? In a note to clients, Citi's Steven Englander said there's a decent chance Carney's comments get picked up and recapitulated by the Fed. "[It is] possible that the shift in the BoE stance may also be affecting how investors are viewing the likely evolution of Fed monetary policy. The worry may be that just as UK forward guidance proved to be less guiding than investors had earlier thought, the Fed may turn around, and use the same language as Governor Carney in shifting the timing of policy moves."

Treasuries. The treasury market yield curve approached its flattest level in five years as investors took this subtle shift toward hawkishness, Bloomberg said. The difference between five- and 30-year yields fell toward the narrowest since 2009 as the yield on the five-year note ticked up a basis point, while they fell on the 30-year note on continued signs of unevenness in the recovery.

China Stabilizing. May industrial production and retail sales both climbed, 10 and 60 basis points respectively.

Intel Surges. Intel shares are up more than 5% this morning after the chip developer lifted its sales outlook on business PC demand.

Hedge Funds Miss Rally. The Wall Street Journal reports major hedge funds are down 5% this year, as bets on volatility soured in one of the most complacent market stretches in years.

Eurobond Sales...Where? As the European Central Bank takes unprecedented measures to ease monetary policy, the cost of borrowing in Euros has sunk, as has the price of swapping euro proceeds into other currencies. So places like Indonesia, South Korea and Brazil are now all starting to issue bonds in Euros, the FT says.

Data. At 8:30 we get produce prices. Expectations are for a gain of 0.1%. And just before 10 a.m. we get UMich/Reuters consumer sentiment. Consensus is for a reading of 83.

Markets. Iraq instability sent European stocks lower. Asian indices held on. U.S. futures were lower.